Government criticizes bankruptcy lawyers’ rising fees

In June, members of the Department of Justice’s (DOJ) U.S. Trustee Program met to discuss proposed guidelines that would increase government oversight of Chapter 11 filings. The group proposed guidelines that would require law firms working on bankruptcy cases to disclose their billing rate and fee applications, stop rounding up billable hours and work within budgets.

The government claims the new disclosure rules are necessary because bankruptcy lawyers’ ever-rising fees, which frequently top $1,000 per hour, unfairly target companies when they are financially fragile. The government also says bankruptcy lawyers’ fees are rising disproportionately to other lawyers’ fees.

Today Thomson Reuters reported that the Trustee’s office plans to officially announce the new Chapter 11 disclosure rules for law firms by the end of the month. The changes comprise the first fee overhaul the Trustee’s office has instituted since 1996.

The new disclosure rules will require law firms to notify their clients of rate increases, calculate how much clients’ bills will rise and supply the Trustee’s office with statements from clients saying they agreed to the higher fees.

With any luck, the changes will curb rising legal costs among floundering companies that are routinely paying fees of hundreds of millions of dollars in large bankruptcy cases. For example, the liquidation of Lehman Brothers Holdings, which is the largest Chapter 11 case in history, has netted $1.6 billion in fees so far.

More than 100 law firms, including Foley & Lardner and Weil Gotshal, are against the Trustee’s office’s new rules, saying they are too burdensome and could increase costs even more.

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